Bell Canada is buying a piece of one of the world's hottest brands. The question is, can the suits at Canada's oldest phone company nurture the hip culture and success of Virgin Mobile Canada?
Bell is paying $142-million to buy out the 50 per cent stake it doesn't own in the joint venture from Richard Branson's British-based Virgin Group.
At the heart is Bell's desire to accelerate wireless growth by pumping more investment into Virgin Mobile, at a rate that exceeds Virgin Group PLC's own budget for the joint venture.
Wireless growth is a top strategy for Bell Canada. The company is investing to upgrade its network, add a greater variety of handsets, buy the national electronics retailer The Source and even expand Virgin Mobile stores. With the money Bell is pouring into wireless, Virgin Group decided the joint operation would grow faster in Bell's hands alone.
As Andrew Black, CEO of Virgin Mobile and Branson's main man in Canada, put it: "Richard Branson realized Bell was probably going to get to 2 million customers quicker because of all those investments than we might have been able to do as a separate, stand alone business."
Branson also probably clears about $40-million on the deal. Not bad for a five-year investment.
Virgin Mobile has proved to be a key driver of wireless growth for Bell Canada. Its customer base is rapidly approaching 1 million after just four years of operation. Unlike Bell's homegrown discount brand, called Solo, the Virgin venture has helped Bell reclaim some market share lost to Rogers Wireless and its discount flanker brand Fido.
"Bell was incapable of building its own flanker brand and had to outsource it to Richard Branson and will have to continue to pay him royalties," says Dvai Ghose, an analyst with Genuity Capital.
The challenge once Bell owns the entire venture will be making the deal seamless to customers by retaining Virgin employees, keeping up the quality of customer service, and maintaining the energy of the youthful brand.
Wade Oosterman, chief marketing officer of Bell Canada and the head of wireless, says he will employ the axiom "if it's not broken, don't fix it," to handle the Virgin Mobile.
"We've obviously worked very closely with the Virgin brand and its people and its culture over the last number of years. And so we're very familiar with what that represents, how it's marketed and the kind of things that are appropriate in the market and those which are not," he says.
"Why would you deviate from what you know is a winning formula? Never mind the contractual obligations. The reason were buying it is because we think it's got market presence and appeal and cache. We bought it not to change it but to continue it."